Correlation Between Royal Orchid and Chalet Hotels

Can any of the company-specific risk be diversified away by investing in both Royal Orchid and Chalet Hotels at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Royal Orchid and Chalet Hotels into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Royal Orchid Hotels and Chalet Hotels Limited, you can compare the effects of market volatilities on Royal Orchid and Chalet Hotels and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Royal Orchid with a short position of Chalet Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of Royal Orchid and Chalet Hotels.

Diversification Opportunities for Royal Orchid and Chalet Hotels

0.78

Correlation Coefficient

Royal Orchid  Chalet Hotels

Poor diversification

The 3 months correlation between Royal and Chalet is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Royal Orchid Hotels and Chalet Hotels Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chalet Hotels Limited and Royal Orchid is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Royal Orchid Hotels are associated (or correlated) with Chalet Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chalet Hotels Limited has no effect on the direction of Royal Orchid i.e., Royal Orchid and Chalet Hotels go up and down completely randomly.

Pair Corralation between Royal Orchid and Chalet Hotels

Assuming the 90 days trading horizon Royal Orchid is expected to generate 1.17 times less return on investment than Chalet Hotels. But when comparing it to its historical volatility, Royal Orchid Hotels is 1.0 times less risky than Chalet Hotels. It trades about 0.01 of its potential returns per unit of risk. Chalet Hotels Limited is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  88,710  in Chalet Hotels Limited on October 12, 2024 and sell it today you would earn a total of  545.00  from holding Chalet Hotels Limited or generate 0.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Royal Orchid Hotels  vs.  Chalet Hotels Limited

Royal Orchid Hotels

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Orchid Hotels are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong essential indicators, Royal Orchid is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Chalet Hotels Limited

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Chalet Hotels Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong essential indicators, Chalet Hotels is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Royal Orchid and Chalet Hotels

The main advantage of trading using opposite Royal Orchid and Chalet Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Royal Orchid position performs unexpectedly, Chalet Hotels can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Chalet Hotels will offset losses from the drop in Chalet Hotels' long position.

The idea behind Royal Orchid Hotels and Chalet Hotels Limited pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.